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Bear of the Day: Family Dollar (FDO)

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Family Dollar Stores, Inc. (FDO) recently warned that earnings would decline in fiscal 2014 compared with the prior year as the retail environment remained challenging. This Zacks Rank #5 (Strong Sell) is facing tough market conditions as its core customers who shop for value haven't seen the benefits of the economic recovery.

Family Dollar is a discount retailer operating 8,000 stores in rural and urban locations in 46 states.

Lackluster First Quarter

On Jan 9, Family Dollar reported fiscal first quarter 2014 results which missed the Zacks Consensus Estimate by a penny.

Sales rose 3.2% to $2.5 billion from $2.4 billion in the year ago period. This was in line with its previously announced guidance for the quarter.

Consumables led the quarter with an increase of 4.7%, as refrigerated and frozen food, health aids and tobacco boosted the quarter.

Comparable store sales fell 2.8% as customer transactions decreased.

Warned on the Full Year

Family Dollar expects the challenges it faced in the first quarter to impact it the rest of the fiscal year. The economy is not great for its core customer and promotions remain intense.

Comparable store sales for December, which is in the second quarter, fell 3% due to a decline in customer transactions.

For the second quarter, comparable store sales are expected to decline in the low-single-digit range.

For the full year, earnings per share are now forecast to be in the range of $3.25 to $3.55 compared with $3.83 it made in fiscal 2013, which also had one more week.

Analysts didn't waste any time in cutting their estimates.

14 out of 15 estimates were lowered for fiscal 2014 after the announcement. The Zacks Consensus Estimate fell to $3.42 from $3.99. That's a 10% decrease in earnings compared with fiscal 2013.

Shares Slide

Investors have been fleeing the shares for the last few months.

Even still, the shares aren't that cheap. It trades with a forward P/E of 19.8.

The discount retailers, as an industry, are in bad shape. They all have customers that are still struggling. The industry ranks in the bottom 4% of Zacks 265 industries.

But if you MUST own one in your portfolio, check out Dollar General (DG - Free Report) . It is a Zacks Rank #3 (Hold) and is expected to see double digit earnings growth this year and next.

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Tracey Ryniec is the Value Stock Strategist for She is also the Editor of the Insider Trader and Value Investor services. You can follow her on twitter at @TraceyRyniec.

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